“Small businesses live and die by their customers.” So says Steve Wilkinghoff, an Alberta-based financial consultant, chartered accountant and author of Found Money – Simple Strategies for Uncovering the Hidden Profit and Cash Flow in Your Business (Wiley).

A business can have the best products or services, state-of-the-art delivery methods, and top-flight employees, “but without customers, a quick death is certain,” asserts Wilkinghoff.

But just having customers isn’t enough, according to this small-business expert. The secret to growth and continued success is knowing which customers generate the most profits. Wilkinghoff calls them “profitable customers.” These are the customers that fatten the bottom line. The more business owners know about them, the better they can tailor products or services to their needs and avoid costly shotgun marketing strategies,” he explains.

How did most profitable customers find out about the business?

Most important, business owners must know where their most profitable customers come from. Was it via the phone directory, a radio ad, Google ads, referrals or direct-response efforts?

This information ought to be gathered on first contact with customers. If not gathered then, it can be quickly gathered by doing a fast phone survey.

Critical information is easy to obtain

Information about customer profitability is within the reach of small-business owners. “Every business owner has a record of sales made to customers,” says Wilkinghoff. “Some have manual invoices and sales records, but most use some type of accounting software program.”

Two tips for tracking customer profitability

1. Take advantage of accounting software. Use accounting software to capture customer profitability data. A little effort downloading it and learning how to use it creates an up-to-the-minute flow of information about which customers are most profitable.

There are few accounting programs on the market that aren’t easy to master. And they’re not expensive. “Two popular ones targeted at small-business owners are Simply Accounting and QuickBooks,” says Wilkinghoff. “Both can be customized to track sales by individual customers, sales by products, and run reports on the profitability of customers.”

Of the two software programs, QuickBooks is the more user-friendly and is the more favored by business owners, according to Wilkinghoff. “It’s more intuitive and can be easily scaled to any business, regardless of size,” he says. There are several different versions of QuickBooks, ranging in price from $30 to $600.

Simply Accounting is also offered in different versions with varying features specific to different businesses. These programs range in price from $50 to $450.

2. Consistently gather and update information. Rather than treat it as a random chore, business owners must build the process into their operational machinery. Information should be gathered and updated on a regular basis, depending upon need. Some businesses do it on a quarterly basis, others monthly. Accurate, updated data lead to good and timely business decisions, says Wilkinghoff.

For more information about Steve Wilkinghoff and his book, visit his Web site at www.stevewilkinghoff.com.